What does the band of investment technique represent in a real estate transaction?

The band of investment technique represents a weighted average between the loan and equity in a real estate transaction. This method combines the return expectations of both the debt (mortgage) and equity investors (property owner's investment) into a single capitalization rate.

By applying this technique, appraisers and investors can understand how the different financing components affect the overall value of the property. It calculates the overall yield that is required by investors based on the proportionate weight of the loan and equity in the capital structure. Thus, the band of investment method serves as a useful tool in valuation by reflecting the risk and return expectations of each source of capital utilized in the property financing.